GOVERNANCE Flashcards
what is the mendelow matrix?
The Mendelow Matrix is a simple tool used in business management to analyze and categorize stakeholders.
it helps you identify and understand who the key players are in a given situation, such as a business project, and how much power or influence they have over the outcome.
this model helps organizations prioritize their efforts in stakeholder management. It guides them in deciding where to focus resources, communication, and engagement to ensure the success of their projects or initiatives
four quadrants of the mendelow matrix
1-High Power, High Interest: These stakeholders are both highly influential and deeply interested in the project’s success. They are critical to engage and satisfy.
2-High Power, Low Interest: These stakeholders have significant power but are not very interested in the project. Managing their concerns is important, but they may not need as much attention as the first group.
3-Low Power, High Interest: These stakeholders have a strong interest in the project’s success, but they don’t have much power or influence. It’s important to keep them informed and engaged, but they may not drive major decisions.
4- Low Power, Low Interest: These stakeholders have neither much power nor interest in the project. They require minimal attention and effort.
what does the OECD say about board of directors
‘the corporate governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board’s accountability to the company and the shareholders’
define board diversity
Board diversity means having a variety of different people on a company’s board of directors. These differences can include things like age, race, gender, education, and job experience. The idea is to make sure the board isn’t made up of just one type of person. Some people also think about less obvious things like life experiences and personal attitudes when talking about board diversity.
In simple terms, board diversity is about having a mix of people with different backgrounds and characteristics in the boardroom. One common way to promote diversity is to make sure there are women on the board.
what are the benefits of diversifying the board?
Diversifying the board is said broadly to have the following benefits:
-More effective decision making.
-Better utilisation of the talent pool.
-Enhancement of corporate reputation and investor relations by establishing the company as a responsible corporate citizen.
how does board diversity lead to effective decision making?
1) Avoiding Groupthink: Groupthink is when everyone in a group agrees just to avoid conflict, even if it’s not the best decision. Diverse boards can reduce this problem because people with different backgrounds and experiences can bring new perspectives and challenge each other’s ideas. This leads to higher-quality decisions.
2) Varied Leadership and Thinking Styles:
Board members with diverse personal characteristics, leadership styles, and ways of thinking can foster creativity and provide a more comprehensive view of the organization’s operations. This helps in identifying and managing various risks like reputation and compliance.
3) Understanding Stakeholders: In today’s global business world, companies need to understand the needs of diverse stakeholders, especially customers.
Having a balanced board with different perspectives, including those of customers, can lead to more informed decisions.
4) Connecting with the External Environment: Board members with different backgrounds and social networks can improve the board’s understanding of external stakeholders and help address their concerns more effectively.
In essence, board diversity can lead to better decision-making by reducing groupthink, promoting diverse thinking styles, enhancing stakeholder understanding, and connecting with the external environment.
how can board diversity result in better utilization of talent pool?
Stakeholders are demanding more from directors, especially from NEDs
NEDs are often criticized for not dedicating enough time to understand the business and represent stakeholders in holding executive directors accountable.
One challenge in finding suitable directors is the limited pool of candidates with specific characteristics. By considering a more diverse set of attributes when searching for board members, companies can address the problem of a shortage of qualified directors and tap into a broader talent pool. Therefore, promoting board diversity is important for companies to access untapped talent resources.
Having NEDs on the board has already been a common requirement across countries. NEDs are, however, often criticised for having insufficient devotion of time and effort in understanding the business and representing stakeholders to scrutinise executive directors in making appropriate decisions.
One of the problems of searching for suitable NEDs lies on the limited number of candidates available when the search is for board members with certain characteristics.
If the search is expanded to include directors with a more diverse range of attributes it will alleviate the problem of ‘director shortage’ and therefore better utilise the talent pool.
It is therefore vital for companies to initiate tapping into the under-utilised pool of talent through board diversity.
how does board diversity improve investor relations and reputation of company?
Having a diverse board can improve a company’s reputation by showing that it values diversity and equal opportunities.
This also signals that the company is socially responsible and connected to its community, strengthening trust with stakeholders.
Additionally, some investors consider board diversity when deciding where to invest because research shows it can lead to better company performance and aligns with corporate social responsibility trends.
In simple terms, having a diverse board can enhance a company’s image and make it more attractive to investors.
what are the costs of board diversity
Increased Conflict: Diverse boards can sometimes lead to more disagreements and friction among members, potentially dividing the board and eroding trust.
Tokenism: Minority members might feel they’re only there to meet diversity quotas, which could lead them to undervalue their own skills and contributions.
Risk of Overlooking Key Attributes: There’s a risk that boards may prioritize diversity over other important qualities in directors.
Boards should be mindful of these costs when working to diversify.
Regulatory initiatives for board diversity?
Quotas: Some countries, like Norway, Spain, and France, mandate a minimum number of women on boards (e.g., at least 40% women in Norway).
Transparency and Disclosure: Corporate governance codes require companies to disclose their diversity policies for board appointments. Failure to comply requires an explanation in the corporate governance report.
‘Comply or Explain’: This approach, used in the UK, Australia, and Hong Kong, encourages diversity without strict quotas. Companies must consider diversity in board appointments and report on their diversity policies and progress.
These initiatives aim to improve board diversity through various methods, from quotas to transparency and voluntary compliance.
one director can’t have expertise in all areas, phases of business, what’s the solution for this?
when staffing boards, it is best to think of individuals contributing different pieces to the total picture , to create an effective board
what is the chairman’s role in respect to board diversity?
The chairman, being the leader of the board, has to facilitate new members joining the team and to encourage open discussions and exchanges of information during formal and informal meetings. To create such a well-functioning team, the chairman further needs to commit and support mentoring, networking and adequate training to board members.
responsibilities of nomination committee in respect to board diversity?
-diversity
-advise on balance between ed and ned
-succession planning
-recruitment policy concerning competency
-analyse what the board lacks in skills and expertise
-advertise board positions periodically.
-They are strongly encouraged not to seek candidates merely through personal contacts and networks in order to carry out a formal and transparent nomination process.
existing board members responsiblity in respect of board diversity?
The most important ingredient to the success of board diversity, however, would most probably be the board members’ changing their mindset to welcome a more heterogeneous board, as well as to place greater trust in one another and work together more effectively.
what are the risks that arise in relation to the environment and sustainability?
Business Risk: Failing to address environmental changes and sustainability concerns can make a company’s business strategies outdated and irrelevant.
Regulatory Risk: Organizations must comply with environmental regulations and standards, like ISO14000, which can affect their competitiveness and reputation. Failing to meet these standards can be detrimental.
Reputation Risk: Not meeting stakeholder expectations regarding environmental issues can harm an organization’s reputation. Overhyping environmental efforts (greenwashing) can also damage credibility. Transparency and credible information are essential for mitigating reputation risks.
Operational Risk: Environmental factors, like severe droughts, can disrupt operations. For example, water shortages can affect industries reliant on water-intensive production processes.
Financial Risk: Organizations may face financial burdens from addressing environmental issues caused by their actions or from revenue loss due to reputation damage.
However, organizations can also seize opportunities by taking a strong environmental stance, adapting their strategies, and addressing these risks effectively. Some industries are already taking steps to mitigate their environmental impact and improve sustainability.
define fast fashion
Within the fashion industry, many ‘fast fashion’ organisations have received negative press because of how they operate, and their supply chain practices. ‘Fast fashion’ relates to cheap, disposable clothing that meets current trend requirements; the ‘fast’ refers to how quickly designs can reach the shops at a low price to customers.
what are the problems in fast fashion?
Historically, ‘fast fashion’ companies have been accused of damaging the environment through the volume of clothing they produce, much of which is discarded after a short period. There is a waste of resources used in the production of that clothing. Many organisations in the ‘fast fashion’ industry are large, global conglomerates, owning many different fashion labels. If these organisations all sell fashion which is expected to be worn for one season or occasion only, this has a significant environmental impact. This impact includes manufacturing pollution, inefficient use of raw materials and waste in production, and associated waste disposal issues, such as excessive landfill.
what steps have been taken to stop fast fashion by regulators?
The extent of dissatisfaction of many stakeholders towards ‘fast fashion’ has led to organisations such as Greenpeace taking a stance against the industry, as well as a United Nations initiative, the UN Alliance for Sustainable Fashion.
-Governments are supporting ethical fashion initiatives. In 2019, France launched a ‘Paris Good Fashion’ initiative which aims to help make the fashion industry greener. Chinese and Indian governments, amongst others, have undertaken similar initiatives.
what steps are being taken/ can be taken by fashion companies to undo the damage of negative press?
Fast fashion companies are now taking steps towards sustainability like:
-recycling schemes, customers can return clothing to stores, they can be sold second hand, turned into other items like cleaning cloths or turned into fibers for insulating material.
-use of sustainable materials like bamboo
-eco-friendly building designs
-carbon footprint offsetting by planting trees
-Integrated reporting is used to communicate sustainability efforts to stakeholders, often including targets for accountability.
what is greenwashing
Greenwashing is the term used to describe when a company promotes itself as environmentally friendly to gain support from stakeholders but puts more effort into marketing this than actually taking positive actions. However, these organisations continue to face heavy criticism from pressure groups and may eventually be forced to take stronger, more credible, actions if they wish to continue with their current business successes.
